What do foundations look for when investing in a non profit? #FundingFriday

How does a foundation evaluate a funding proposal? Is there a magic formula?

Field notes from a career in venture philanthropy, as a fundraiser, field worker/social worker and social entrepreneur.

** Caveat – I speak for myself and from my experience both on the venture philanthropy side and as someone who has worked in the innovation and social entrepreneurship sector for nearly a decade. I actively work with over a dozen SE's across sectors that include assistive tech, sustinable agriculture and urban forestry, animal welfare and arts,craft and &culture.

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Rolling back the clock, to when I started my career in the social sector (about a decade ago), I found that it was really hard to learn the inner workings of foundations and funding agencies. I felt like an outsider looking in and, the vortex of information asymmetry was maddening. On the upside, there are a bunch of great lessons that came out from my experiences that have helped me do more, better.

Today, I am on the funding side of the sector, and often get asked questions around how funders evaluate proposals. I am writing this quick read with the hope that it offers some insights, especially since most foundations and CSR's are in the process of finalising their funding agendas for the upcoming year. For access to tips, tools etc - reach out to me seperately and I will try to help.

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Typically, as part of every funding agency/funders investment process, we do some fact gathering/checking work that is called due diligence (borrowed vernacular from the VC / finance business)

When I break it down, here are the top 3 things that are non negotiable for most funders -

#3Thesis Fit - Most foundations have an articulated vision/mission and some even go to the extent of having a theory of change laid out on their website. But rarely, do they have an articulated thesis. A thesis is really part of the fiber of the fund – a shared set of ideas that creates a framework allowing managers to operate with focus and work on only what matters most to the donors/board/ fund leadership. However, family offices and funds typically have a sense of what constitutes that investing thesis. From a nonprofits perspective, doing your homework to figure out if you are a good fit is absolutely crucial. This is always a great place to start a conversation. CSR's typically have an articualted focus area that is a great place to start a conversation.

#2  Compliance and Legal - Another consideration is the legal structure of the organization – are you a tax benefit entity (nonprofit, 80G compliant etc.) and of course a peek into the audited financials is mandatory. Organizations that do not have this data available in the open source are typically a red flag. Reference checking is a very real phenomenon in the funding space since most funders know each other. From a non profit perspective, it is wise to ensure that all communication about failed associations/relationships are transparent with potential funders.

#1 Team - What often gets overlooked by nonprofits is – foundations and funds generally take a long term view when they have a clearly articulated purpose. This means that besides looking at an organization’s fit and legal structure, close attention is paid to the founders, founding team and leadership. This is where it often falls apart, as organizations in the social sector are unable to attract and retain middle management and leadership talent that can truly further their vision ,mission and goals.

 Now, this last one isn’t commonplace to many funders yet. But, my sense is that it is beginning to become a core part of almost all large-scale funding agendas – Innovation. I can’t overstate the importance of innovation and knowledge creation as a core value for a nonprofit. Knowledge includes education and learning, but also data driven insights and access to new ideas. Funders value ideas/ work that push a sector forward and enrich an ecosystem. 

It is worth nothing that as donors evolve and mature, there is a keen focus on inclusion, diversity, leadership and innovation.It is important for non profits to walk the talk. Finally, trust that comes from true alignment with the values and priorities of the donors goes a long way in opening unexpected (but welcoming) doors and opportunities.

By no means is this checklist meant to be exhaustive. However, it is indicative of what it takes to raise any kind of funding – family foundations, foundations, impact funds and CSR's

I have a post coming up on the shortcomings of funders and how to navigate the CSR funding space - so watch this space.

Reach out for questions, collaborations or to learn about our funding thesis at SVP – [email protected]